If you plan to hire employees in Hawaii you will have quite a few compliance issues to deal with, both federal and state – here is a guide to hiring in Hawaii.
If you need help, Tax Services Oahu offers affordable Full Service Hawaii Employer and Payroll Services.
Obtain a Federal Employer Identification Number (FEIN)
Before you can hire and pay employees, you must get a FEIN. This is like a social security number (tax ID number) for your business. You will be using this number to pay and withhold federal payroll taxes.
If you are organized as a corporation or LLC you probably already have one. Check your entity organizational paperwork.
You can apply for your Federal Employer Identification Number online here (link opens in a new window).
Have Your Employees Fill Out Form W-4
This is another federal obligation. Print and distribute form W-4 to your new employees before they start working for you. You need the information on this form to process tax withholding requirements.
The form is fairly easy to fill out and there is no requirement to fill in the accompanying worksheet.
Employers no longer need to submit every form W-4 to the IRS, though they need to be kept on record. The IRS at anytime can request to see the completed forms.
Have Your Employees Fill Out Form HW-4 Too
This is the Hawaii State version of the federal form W-4. You must also keep a copy of this form on file. If you feel that an employee is irresponsibly withholding too little in taxes, you are supposed to mail in a copy to the state.
Get Worker’s Compensation Insurance
Yes you have to. Even if you only have one employee in Hawaii.
There are a few exceptions, such as if you are a sole employee or you and your spouse are sole owner/employees. Also, if you are the sole employee of a corporation that you own, etc, you are exempted from the requirement. Another example would be two partners who both own the partnership and are both the only employees of the partnership. Contact an expert to be sure if you think these might apply to you.
There are also some cases in where you can get permission from the director to self-insure – but this is probably not applicable to your situation.
By law, you cannot have your employee contribute to the cost of worker’s comp, though it’s not particularly expensive.
You get workers compensation insurance for your employees through a commercial provider. A quick internet search on the subject will yield some familiar insurance names who provide this type of insurance.
Get Workers Disability Insurance (TDI)
This one is very likely going to be a requirement for you too.
There are some exceptions to this requirement as well. These are employees of the federal government, household workers, sales agents that work specifically for commissions (such as insurance agents and real estate salespeople), most family employees, interns and student nurses, and newspaper delivery workers under the age of 18. There are a few more uncommon exceptions.
Employers can self-insure, but just like workers comp insurance, they need permission and approval from the State of Hawaii.
Contrary to workers comp insurance rules, employers can share the cost of TDI with their employees.
Report Your New Employees to the Child Support Enforcement Agency (CSEA)
All Hawaii employers are required to report information about new employees to the Child Support Enforcement Agency (CSEA), New Hire Reporting. This includes all businesses, state and local government employers, and non-profit organizations regardless of the number of employees.
You can add information to a copy of the federal form W-4 and fax it in.
Registering for Tax Withholding with the State of Hawaii
You probably already have a Hawaii General Excise Tax (Hawaii GE Tax) License. If not, you will need one.
If you do not have a GE Tax license, you will need to fill out form BB1 – State of Hawaii Basic Business Application. If you do have a GE Tax license already, you probably need to file an amendment to form BB1. Why? Because you have to add a request for a withholding tax number, which will be the same number as your GE Tax number, but a different “account”.
While you are at it, fill out two applications (see next requirement)…
Registering for Unemployment Insurance in Hawaii
When you submit two copies of form BB1, the Department of Taxation will forward a copy to the Unemployment Insurance Division of the Hawaii Department of Labor and Industrial Relations. They will send you a labor packet and assign you an unemployment account number.
Unemployment insurance is not like workers comp insurance or TDI. Instead, this insurance is state sponsored and it will be paid online or sent in along with your state payroll tax form submissions – but more on that later.
What you need to do now is to obtain that account number from the Department of Labor.
Verify Your Employee is Legal to Work for You
Back to federal requirements. In this one we have three days to complete form I-9 – “Employment Eligibility Verification Form”. This has to be done for each employee.
You do not have to send this form in. Instead you keep it on file for three years or one year after the employee no longer works for you, whichever is later.
Post Required Informational Documents
Federal regulations require all U.S. businesses with at least one employee to display the following postings within the workplace:
- Federal Minimum Wage
- Employee Polygraph Protection
Hawaii Regulations require that you post:
- Smoking Prohibited by Law
- Laws Prohibiting Employment Discrimination
- Unemployment Insurance Law
- Disability Compensation Law
- Wage and Hour Laws
- Whistle-blower Protection Law
- Occupational Safety and Health Laws
- Required Notice to Dislocated Workers and Plant Closings
- Breastfeeding in the Workplace
- Human Trafficking
There are third party companies that make laminated posters that completely comply with these requirements. They are easy to find online.
Withhold Taxes From Employee Paychecks
Using the information on form W-4, you can figure out how much in taxes need to be withheld and paid to the Department of the Treasury and the Hawaii State Tax Collector.
You must keep records of the withholding amounts on file for four years.
- Federal Income Tax
- Social Security Tax
- Medicare Tax
- Additional Medicare Tax (where applicable)
- Hawaii State Income Tax
Deposit Your payroll Taxes
On a periodic basis, you must deposit the withheld amounts along with your share of payroll taxes to the Department of the Treasury and The Hawaii State Tax Collector. These payroll taxes include:
- Depositing federal income tax withheld from employees
- Paying the employers share of social security and medicare taxes
- Federal Unemployment Tax (FUTA)
- State Unemployment Tax (SUTA)
Frequency of deposits depend on how much tax you have to pay.
The rules are a little complex, but generally speaking, if you have less than $2,500 to deposit in a year, you can send in quarterly payments with your payroll tax return.
If you have to send in more than $2,500 a year in withholding and payroll taxes, you have to make electronic deposits monthly or semi-weekly depending on how much you were required to pay in a “look back period”.
From the IRS website:
“If you have filed only Form 941, the look back is a 12-month period, covering four quarters, ending June 30 of the prior year. If you filed Form 944 in either of the two previous years, or you are filing Form 944 in the current year, the look back period is the second prior calendar year. If you reported $50,000 or less of taxes for the look back period, you are a monthly schedule depositor; if you reported more than $50,000, you are a semiweekly schedule depositor.”
Failure to pay on time can lead to some pretty severe penalties.
Report Your Payroll Taxes
Not only must an employer deposit payroll taxes and employee withholding, but tax returns for these deposits must be filed as follows:
- Annual federal unemployment tax return (Form 940 or 940EZ)
- Employer’s quarterly payroll tax return (Form 941)
- Annual Return of Withheld Federal Income Tax (Form 945)
- Wage and Tax Statements (Form W-2)
- Hawaii Income Tax Withheld and Wages Paid (Form HW-2)
- Hawaii Employers Annual Return and Reconciliation (Form HW-3)
- Hawaii Withholding Tax Return (Form HW-14)
Form W2 must be both submitted to the IRS and provided to the employees.
That’s a Lot of Stuff, Should I Hire a Payroll Service?
Well, our firm provides payroll services, so one would think that I’m biased. I honestly believe, however, that you would be making a mistake by going online and doing it yourself. This is because of the time costs and hassles of getting things handled when things go wrong or difficult questions arise. Fixing problems can become time consuming and expensive, as many payroll service providers will refuse to “clean up” issues and problems for non-clients – or charge an arm and a leg to do so. Even when things go smoothly, managing your own payroll processing, tax return filing, payroll bookkeeping, and payroll deposits can be quite time consuming.
If you think you might want to hire us to help with your payroll or with other tax services, please contact us here. Our email is email@example.com and our phone number is 808-744-5314. Aloha.
Our time for new clients becomes limited as deadlines approach. Please contact us early so we can be sure to help you!
- How to Hire Employees in Hawaii – Small Business Employer’s Guide
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- Small Business Payroll – How to Pay Yourself
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